Boohoo sales up, profit down; short-term pain offers hope of long-term gain
There was good news and bad in Boohoo’s final results for the year to February, but much of the bad news had been flagged in advance and the firm said the pain it's feeling now should be balanced by future growth.
On the plus side, the results report showed it enjoying a “significantly increased market share in the UK and US” compared to two years ago with total sales up 61% in that period.
It also said it has extended its target addressable market through acquisitions, with up to 500 million potential customers, and now has increased warehousing and distribution capacity, capable of supporting over £4 billion of net sales.
The headline figures for the year saw the Boohoo, PrettyLittleThing, Nasty Gal and Karen Millen owner achieving revenue of £1.982 billion in FY22, up 14% from FY21 and 61% higher than FY20.
Gross profit rose 10% year-on-year to £1.041 billion and rose 56% on a two-year basis. But the gross margin was down 170 bps over one year and 150 bps over two.
Adjusted EBITDA was £125.1 million, down 28% against FY21 and down 1% against FY20, while statutory pre-tax profit was down 94% on the year at £7.8 million and 92% lower than two years ago. That was due to “significant” freight and logistics cost inflation and “record investments across [the] multi-brand platform”. Boohoo said it saw “£60 million of pandemic-related shipping cost headwinds and investment in launching our new brands”.
That investment has included important developments for the future such as the relaunch of Debenhams, “adding a new dimension of a digital department store to the group's portfolio and extending the group's target addressable market”. Plus there was the integration and relaunch of the newly acquired Dorothy Perkins, Wallis and Burton brands, and the purchase of new offices in London's West End, for its London-based brands and staff.
CEO John Lyttle said: “Over the past two years, we have significantly increased market share in our core geographies and we have grown active customer numbers by 43% to 20 million. Our focus has been on investing to build a strong platform. In the year ahead we are focused on optimising our operations through increasing flexibility within our supply chain, landing key efficiency projects and progressing strategic initiatives such as wholesale and our US distribution centre. This will ensure that the group is well-positioned to rebound strongly as pandemic-related headwinds ease.”
With that in mind, its plans are on track for automation of its Sheffield warehouse going live in FY23, “driving material efficiencies”, and the opening of a new distribution centre in the US in FY24, “transforming [the] delivery proposition”.
UK GROWS, INTERNATIONAL SALES DIP
Looking back at the latest year, growth remained strong in the company's largest market, the UK, at 27%.
But overall growth was still hurt by three factors: returns rates that increased significantly in H2, “ahead of both expectations and pre-pandemic levels”; consumer demand that was “subdued” as a result of lockdowns in key markets throughout the year; and its international business being dented by extended delivery times.
That meant international sales fell by 3% with international revenue now representing 39% of its total, compared to 46% a year earlier. That fall in the percentage wasn't only down to lower global sales, but was also affected by that particularly strong growth in the UK and the mix impact from brands acquired in the last two years.
And heading into the new financial year, the group is planning the business on the basis that the pandemic-related external factors impacting performance in FY22 will continue for the period.
Its priorities therefore are focusing on optimising its operations. This will include “targeting increased sourcing from near-shore markets, leveraging the flexibility that exists in the group's diverse supplier base to reduce lead times that have been negatively impacted through global supply chain challenges in FY22 and exposure to fluctuating inbound freight costs that remain elevated”.
It will also operate with lower levels of inventory “through tighter stock management and increased levels of open-to-buy, giving greater flexibility to react to changes in demand midseason”.
And the group has launched a cost efficiency programme too.
But while headwinds are expected to continue and be a major problem in H1 (albeit with Q2 showing an improvement on Q1), the second half should be much better. It said the performance is expected to improve in H2 “with sales growth accelerating as the group annualises high returns rates and normalising consumer demand, with profitability improving as it benefits from key strategic initiatives and leveraging of overheads”.
With all that in mind, it “expects to emerge from the pandemic in a far stronger position compared to two years ago. Reflecting significant and ongoing investments in its platform, brands, distribution and people”.
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